Unit 6: Profit Maximization of a Purely Competitive Firm

What’s in This Chapter? In this chapter we discuss four types of industries, each with varying degrees of competition. A purely competitive industry is most competitive. A monopolistically competitive industry is very...

The Four Industry Types An industry can be classified in one of four market types: 1. Pure competition. Pure competition is a market structure in which there are many competing firms selling identical products or services. Very...

Total Revenue A firm’s total revenue is equal to the price of the product times the number of products sold. For example, if you own a company and you sell 100 magazines at $2 per magazine, then your total revenue is 100 x...

Average Revenue Average revenue is revenue per product. For example, if your firm’s total revenue is $200, and you are selling 100 products, then your average revenue is $200 divided by 100, or $2. Marginal Revenue...

Combining Revenue and Costs In the previous sections in this unit, we analyzed revenue curves. In order to calculate profit, we also need to know the firm’s costs. Using the revenue data and graphs from the previous...

Combining Revenue and Costs in a Table In the previous section, we analyzed profit maximization by studying graphs. In this section, we will analyze a purely competitive firm’s profit maximizing quantity based on data from...

Profits in Pure Competition Because of the relative ease with which new firms can enter a purely competitive industry, it is unlikely that economic profits will be unreasonably high in the long run. In fact, economists say that...

Characteristics of the Farming Industry The farming industry in the United States and other industrialized countries is very competitive. It is an example of an industry that is nearly purely competitive. Characteristics of the...